U.S.-CANADA RELATIONSThe bilateral relationship between the United States and Canada is perhaps the closest and most extensive in the world. It is reflected in the staggering volume of trade--the equivalent of over $1 billion a day in goods, services, and investment income--and people, more than 200 million a year crossing the U.S.-Canadian border. In fields ranging from law enforcement cooperation to environmental cooperation to free trade, the two countries have set the standard by which many other countries measure their own progress. In addition to their close bilateral ties, Canada and the U.S. also work closely through multilateral fora.

Canada--a charter signatory to the United Nations and the North Atlantic Treaty Organization (NATO)--has continued to take an active role in the United Nations, including peacekeeping operations. Canada also is an active participant in discussions stemming from the Organization for Security and Cooperation in Europe (OSCE). Canada joined the Organization of American States (OAS) in 1990 and has been an active member, hosting the OAS General Assembly in Windsor in June 2000. In April 2001, Canada hosted the third Summit of the Americas in Quebec City. Canada served as the 2002 G-8 chair and hosted the G-8 summit in Kananaskis, Alberta, in June 2002. Canada also seeks to expand its ties to Pacific Rim economies through membership in the Asia-Pacific Economic Cooperation forum (APEC).

Although Canada views good relations with the U.S. as crucial to a wide range of interests, it occasionally pursues independent policies at odds with the United States. In 2003, Canada did not participate in the U.S.-led military coalition that liberated Iraq (although it has contributed financially to Iraq's reconstruction). Another example is Canada's leadership in the creation of and on-going support for the UN-created International Criminal Court (ICC) for war crimes, which the U.S. opposes due to fundamental flaws in the treaty that leave the ICC vulnerable to exploitation and politically motivated prosecutions. The United States and Canada also differ on the issue of landmines. Canada is a strong proponent of the Mine Ban Treaty (the Ottawa Convention), which bans the use of anti-personnel mines. The United States, while the world's leading supporter of demining initiatives, declined to sign the treaty due to unmet concerns regarding the protection of its forces and allies, particularly those serving on the Korean Peninsula, as well as the lack of exemptions for mixed munitions.

U.S. defense arrangements with Canada are more extensive than with any other country. The Permanent Joint Board on Defense, established in 1940, provides policy-level consultation on bilateral defense matters. The United States and Canada share NATO mutual security commitments. In addition, U.S. and Canadian military forces have cooperated since 1958 on continental air defense within the framework of the North American Aerospace Defense Command (NORAD). The military response to the terrorist attacks of September 11, 2001 both tested and strengthened military cooperation between the United States and Canada. In December 2002, the two countries established a Binational Planning Group to develop joint plans for maritime and land defense and for military support to civil authorities in times of emergency. Since 2002, Canada has participated in joint military actions in Afghanistan and, in early 2004, Canada assumed command of the International Security and Assistance Forces (ISAF) in Kabul. Canada has also contributed to stabilization efforts in Haiti, including by deploying over 500 Canadian troops.

The two countries also work closely to resolve transboundary environmental issues, an area of increasing importance in the bilateral relationship. A principal instrument of this cooperation is the International Joint Commission (IJC), established as part of the Boundary Waters Treaty of 1909 to resolve differences and promote international cooperation on boundary waters. The Great Lakes Water Quality Agreement of 1972 is another historic example of joint cooperation in controlling transboundary water pollution. The two governments also consult semiannually on transboundary air pollution. Under the Air Quality Agreement of 1991, both countries have made substantial progress in coordinating and implementing their acid rain control programs and signed an annex on ground level ozone in 2000. In June 2003, Canada and the U.S. announced a new border air quality initiative designed to increase cooperation in combating cross-border air pollution, including particulate matter. Three regional projects have been selected for initial joint action.

While law enforcement cooperation and coordination were excellent prior to the terrorist attacks on the United States of September 11, they have since become even closer. Canada, like the United States, has strengthened its laws and realigned resources to fight terrorism. U.S.-Canada bilateral and multilateral cooperation in the fight is unequaled.

Trade and InvestmentThe United States and Canada have the world's largest bilateral trading relationship. In 2003, total merchandise trade between the two countries was $394 billion, translating into over $1 billion in goods crossing the border every day. The two-way trade that crosses the Ambassador Bridge between Michigan and Ontario equals all U.S. exports to Japan. Canada's importance to the United States is not just a border-state phenomenon: Canada is the leading export market for 39 of the 50 U.S. States.

The comprehensive U.S.-Canada Free Trade Agreement (FTA), which went into effect in 1989, was superseded by the North American Free Trade Agreement among the United States, Canada and Mexico (NAFTA) in 1994. NAFTA, which embraces the 406 million people of the three North American countries, expanded upon FTA commitments to move toward reducing trade barriers and establishing agreed upon trade rules. It has also resolved long-standing bilateral irritants and liberalized rules in several areas, including agriculture, services, energy, financial services, investment, and government procurement. Since the implementation of NAFTA in 1994, total two-way merchandise trade between the United States and Canada has grown by 125%. When services are added, the growth has been 142%.

Canada is an urban services-dependent economy with a large manufacturing base. Since Canada is the largest export market for 39 of the 50 States, the U.S.-Canada border is extremely important to the well-being and livelihood of millions of Americans.

The U.S. is Canada's leading agricultural market, taking nearly one-third of all food exports. However, imports of Canadian livestock products, particularly ruminants, fell drastically after the discovery of a single case of bovine spongiform encephalopathy (BSE, mad cow disease) in Spring 2003. Only limited shipments of certain beef cuts are currently permitted. Conversely, Canada is the second-largest U.S. agricultural market (after Japan), primarily importing fresh fruits and vegetables and livestock products. Of Canada's $27 billion in exports of wood, pulp, and paper in 2001, 80% went to the United States.

The U.S. and Canada enjoy the largest energy trade relationship in the world, with Canada being the single largest foreign supplier of energy to the United States - 17% of U.S. oil imports and 18% of U.S. natural gas demand. Recognition of the commercial viability of Canada's oil sands has raised Canada's proven reserves to 180 billion barrels, making it the world's second-largest holder of reserves after Saudi Arabia. The electricity grids of the United States and Canada are linked and both countries share hydropower facilities on the Western borders. Quebec is a major source of electricity for New England.

While 98% of U.S.-Canada trade flows smoothly, there are occasional bilateral trade disputes over the remaining 2%. Usually, however, these issues are resolved through bilateral consultative forums or referral to World Trade Organization (WTO) or NAFTA dispute resolution. For example, in response to WTO challenges by the United States, the U.S. and Canadian Governments negotiated an agreement on magazines that will provide increased access for the U.S. publishing industry to the Canadian market, and Canada amended its patent laws to extend patent protection to 20 years. Canada currently has several disputes with the United States related to U.S. trade remedy law, including actions taken by the U.S. Government on softwood lumber, pending in the WTO and NAFTA dispute mechanisms. The U.S. and Canada resolved a WTO dispute over dairy products in 2003. The United States and Canada also have resolved several major issues involving fisheries. By common agreement, the two countries submitted a Gulf of Maine boundary dispute to the International Court of Justice in 1981; both accepted the Court's October 12, 1984 ruling that demarcated the territorial sea boundary.

The United States and Canada signed a Pacific Salmon Agreement in June 1999 that settled differences over implementation of the 1985 Pacific Salmon Treaty. In 2001, the two countries reached agreement on Yukon River Salmon, implementing a new abundance-based resource management regime and effectively realizing coordinated management over all West Coast salmon fisheries. The United States and Canada recently reached agreement on sharing another transboundary marine resource, Pacific Hake.

In 1995, the United States and Canada signed a liberalized aviation agreement, and air traffic between the two countries has increased dramatically as a result. U.S. immigration and customs inspectors provide preclearance services at seven airports in Canada, allowing air travelers direct connections in the United States. The two countries also share in operation of the St. Lawrence Seaway, connecting the Great Lakes to the Atlantic Ocean.

The U.S. is Canada's largest foreign investor. Statistics Canada reports that at the end of 2002, the stock of U.S. foreign direct investment in Canada was $142.8 billion, or about 72% of total foreign direct investment in Canada. U.S. investment is primarily in Canada's mining and smelting industries, petroleum, chemicals, the manufacture of machinery and transportation equipment, and finance. (Note: 2003 figures are still not available.)

Canada is the third-largest foreign investor in the United States. At the end of 2002, the stock of Canadian direct investment in the United States was estimated at $92 billion. Canadian investment in the United States, including investments from Canadian holding companies in the Netherlands, was $128.5 billion. Canadian investment in the United States is concentrated in manufacturing, wholesale trade, real estate, petroleum, finance, and insurance and other services.

Principal U.S. Embassy OfficialsAmbassador--Paul CellucciDeputy Chief of Mission--John DicksonMinister-Counselor for Political Affairs--Brian FloraMinister-Counselor for Economic Affairs--Michael GallagherMinister-Counselor for Public Affairs--James WilliamsMinister-Counselor for Commercial Affairs--Thomas Lee BoamMinister-Counselor for Consular Affairs--Keith Powell

The U.S. Embassy in Canada is located at 490 Sussex Drive, Ottawa, Ontario, K1N 1G8 (tel. 613-238-5335).

GOVERNMENTCanada is a constitutional monarchy with a federal system, a parliamentary government, and strong democratic traditions. The 1982 Charter of Rights guarantees basic rights in many areas. Queen Elizabeth II, as Queen of Canada, serves as a symbol of the nation's unity. She appoints a governor general, who serves as her representative in Canada, on the advice of the prime minister of Canada, usually for a 5-year term. The prime minister is the leader of the political party in power and is the head of the cabinet. The cabinet remains in office as long as it retains majority support in the House of Commons on major issues.

Canada's parliament consists of an elected House of Commons and an appointed Senate. Legislative power rests with the 308-member (as of the June 28, 2004 elections) Commons, which is elected for a period not to exceed 5 years. The prime minister may ask the governor general to dissolve parliament and call new elections at any time during that period. Vacancies in the 105-member Senate, whose members serve until the age of 75, are filled by the governor general on the advice of the prime minister. Recent constitutional initiatives have sought unsuccessfully to strengthen the Senate by making it elective and assigning it a greater regional representational role.

Criminal law, based largely on British law, is uniform throughout the nation and is under federal jurisdiction. Civil law is also based on the common law of England, except in Quebec, which has retained its own civil code patterned after that of France. Justice is administered by federal, provincial, and municipal courts.

Each province is governed by a premier and a single, elected legislative chamber. A lieutenant-governor appointed by the governor general represents the Crown in each province.

Principal Government Officials (as of July 20, 2004)Head of State--Queen Elizabeth IIGovernor General--Adrienne Clarkson Prime Minister--Paul Martin Minister of Foreign Affairs--Pierre PettigrewAmbassador to the United States--Michael KerginAmbassador to the United Nations--Allan Rock

Canada maintains an embassy in the United States at 501 Pennsylvania Avenue, NW, Washington, DC 20001 (tel. 202-682-1740).

POLITICAL CONDITIONSOn December 12, 2003, Paul Martin became Canada's twenty-first Prime Minister, succeeding Jean Chretien. A successful businessman in his own right, Martin has broad prior governmental experience, serving as Chretien's Minister of Finance from 1993-2002. In the June 28, 2004 elections the Liberal Party received a fourth consecutive mandate to govern, although they only earned a plurality (135 of 308) of the seats in parliament. The remainder of the seats were split among three other parties and one Independent M.P. The newly formed Conservative Party of Canada, led by Stephen Harper, won 99 seats--some 21 more than the combined total in the last election of its two predecessor parties, the western-based conservative Canadian Alliance and the Progressive Conservative party. The pro-sovereignty Bloc Quebecois won 54 seats, up from the 33 held at adjournment of parliament. The Bloc's gains at the expense of the Liberals are broadly attributed to fallout from a Chretien-era scandal involving misuse of funds to promote the federal government's image in Quebec. Finally, the left-of-center New Democratic Party increased its holdings from 14 to 19 seats.

Though the new government is considered to be relatively stable, expectations are that it will not last more than 18 to 24 months. As a minority government, the Liberals will advance their agenda on an issue-by-issue basis, rather than creating a majority through a formal alliance with another party. The Prime Minister may call another election at his discretion or be forced to do so if his government loses a confidence vote in the House of Commons.

In Canada's political system, a key challenge for any federal government is balancing the conflicting interests of Canada's 10 provinces and 3 territories. Quebec, which represents 23% of the national population (and has 75 seats in the House of Commons), seeks to preserve its distinctive francophone nature, and is perceived by the less-populous western provinces as wielding undue influence on the country. The western provinces don't believe their interests are given enough attention in Ottawa; industrialized central Canada is chiefly concerned with economic development; and the Atlantic provinces resist federal claims to fishing and mineral rights off their shores. The government, which has been under Liberal control since 1993, has ceded some spending power in areas of provincial jurisdiction, while strengthening the federal role in areas such as inter-provincial trade and the regulation of securities. Decreased federal support to the provinces for health care services has been a major point of contention between provincial leaders and the Chretien and Martin governments.

National UnityThe election in April 2003 of Premier Jean Charest and the Liberal Party of Quebec to govern Canada's second most populous province, was a significant victory for the Chretien government, which had struggled, under the threat of secession, to accommodate the aspirations of the French-speaking province. Though separatist aspirations are currently muted, and for now most Quebec voters seem to appreciate the assurance of maintaining their separate francophone identity and the economic benefits of remaining in the Confederation, 47% of Quebec voters still identify themselves as desiring a sovereign state.

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